Oil prices rose further on Wednesday after data indicated that US crude inventories shrank substantially in the past week, although the introduction of new anti-COVID curbs in major Chinese cities put a lid on gains.
Data from the American Petroleum Institute showed that US crude stockpiles fell a bigger-than-expected 4.8 million barrels in the past week, likely heralding a similar decline in official government figures due later today. Focus will also be on the pace of the US government’s drawdown from the Strategic Petroleum Reserve, which is at an over 38-year low.
Brent oil futures rose 0.1% to $88.44 a barrel, while West Texas Intermediate crude futures rose 0.2% to $81.08 a barrel by 21:19 ET (02:19 GMT). Both contracts rose on Tuesday after Saudi Arabia denied reports that the Organization of Petroleum Exporting Countries (OPEC) and allies were considering a supply increase.
Weakness in the dollar, amid uncertainty over the path of US interest rates, also helped support prices.
But gains were muted as rising COVID-19 cases in China saw the introduction of more curbs in major cities, particularly Beijing and China. The country is now struggling with a record-high increase in daily infections, which markets fear could trigger a slowdown in the world’s largest oil importer.
China’s oil imports sank 4.3% in the first nine months of 2022, with demand expected to remain subdued amid rising COVID-19 cases. Fuel exports and production in the country rose substantially, with heightened export quotas reflecting subdued local demand.
Weakening Chinese demand was among the biggest weights on oil markets this year, with the trend showing no signs of changing in the near-term. Beijing has so far remained reluctant in scaling back its strict zero-COVID policy.
But signs of tightening supply helped curb losses in crude prices. Focus is now on upcoming western price caps on Russian oil, which are expected to push Moscow into trimming its oil sales and further tightening global crude supply.
Europe is also set to enact a blanket ban on Russian oil from next month.
Markets were holding out for more production cuts by the OPEC to stabilize prices, as a 2 million barrel per day supply cut goes into effect this month.
The cartel, which is set to meet in early-December, vowed to help stabilize crude prices with more supply cuts if needed.